Hutchison Essar Telecom Ltd., New Delhi V. JCIT,

ITA 1751/CHNY/2004

• Counselvise Citation: 175120114 RSA 2004
• Duration Of Justice: 8 year(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 31-07-2012
• Assessment Year: 1997-1998
• Appeal Filed On: 09-07-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DK MISHR A
• Keywords: Capital asset; Business income; Depreciation; Wholly owned subsidiary; Notional interest; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI R.K. GUPTA AND SHRI B.C. MEENA ITA NOS. 1751 & 1752/MDS/2004 A.YR. 1997-98 & 1999-2000 HUTCHISON ESSAR TELECOM LTD., VS. JT. COMMISSION ER OF C-48, OKHLA INDUSTRIAL AREA, INCOME-TAX, SPL. RAN GE-11, PHASE-II, NEW DELHI-110020. CHENNAI. PAN/ GIR NO. 150-S ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI SALIL KAPOOR ADV. RESPONDENT BY : SHRI D.K. MISHRA CIT (DR ) O R D E R PER R.K. GUPTA, J.M: : THESE ARE ASSESSEES APPEALS AGAINST SEPARATE ORDER S OF CIT(A) RELATING TO A.Y. 1997-98 & 1999-2000. BOTH THE APPE ALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY A COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 1751/DEL/2004 (A.Y. 1997-98) : 2. GROUND NO. 1 IS AGAINST UPHOLDING THE DISALLOWAN CE OF EXCHANGE DIFFERENCE OF RS. 19.96 LACS ARISING ON ACCOUNT OF IMPORT OF HAND SETS TRADED BY THE ASSESSEE. 3. ASSESSEE CLAIMED DEDUCTION OF RS. 19.96 LACS ON ACCOUNT OF EXCHANGE VARIATION BY CLAIMING THE SAME AS REVENUE EXPENDITU RE. ASSESSING OFFICER STATED THAT LOAN WAS TAKEN FOR PURCHASE OF MACHIN ERY AND HAND SETS AND THEREFORE THE SAME CANNOT BE ALLOWED AS REVENUE IN NATURE. ACCORDINGLY, GROUND OF THE ASSESSEE WAS REJECTED. CIT(A) ALSO C ONFIRMED THE ACTION OF THE ASSESSING OFFICER. 1751 & 1752/DEL/04 HUTCHISON ESSAR TELECOM LTD. 2 4. SUBMISSIONS MADE BEFORE AUTHORITIES BELOW WERE R EITERATED HEREIN BEFORE THE TRIBUNAL BY LD. AR. ON A QUERY FROM THE BENCH THAT HOW THESE EXPENSES WERE INCURRED BY ASSESSEE, WHICH ARE TREAT ED AS REVENUE IN NATURE. AT THIS POINT OF TIME, LD. A.R. STATED THAT DETAIL IS NOT AVAILABLE. ACCORDINGLY, AN ALTERNATE REQUEST WAS MADE THAT AT LEAST DEPRECI ATION SHOULD BE ALLOWED AS DEPARTMENT HAS TREATED THE SAME ON CAPITAL ACCOUNT. ON THESE SUBMISSIONS OF LD. A.R., THE LD. D.R. ALSO FAIRLY AGREED THAT DEPR ECIATION CAN BE ALLOWED. 5. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE REJECT THE GROUND OF THE ASSESSEE FOR TREATING THE EXPENSES ON REVENUE A CCOUNT. HOWEVER, WE DIRECT THE ASSESSING OFFICER TO ALLOW DEPRECIATION ON THIS AMOUNT BEING THE SAME ON CAPITAL ACCOUNT FOR PURCHASE OF MACHINERY/ HAND SET. WE ORDER ACCORDINGLY. 6. GROUND NO. 2.1, 2.2 & 2.3 WERE NOT PRESSED FOR THE REASON THAT THE INITIAL PAYMENT OF THREE YEARS PAID FOR OBTAINING L ICENSE IS ENDURING IN NATURE, THEREFORE, DEDUCTION U/S 35ABB WAS ALLOWABL E WHICH HAVE ALREADY BEEN ALLOWED BY THE ASSESSING OFFICER . HOWEVER, IT WAS SUBMITTED THAT AFTER THREE YEARS THERE IS A CHANGE IN THE FACTS, THEREFO RE, THIS ISSUE WILL BE TREATED AS ALIVE FOR SUBSEQUENT YEARS. FOR THESE REASONS, T HESE GROUNDS WERE NOT PRESSED, THEREFORE, THEY ARE DISMISSED AS NOT PRESS ED. 7. REMAINING GROUND NO. 3 IS AGAINST SUSTENANCE OF DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF CONTRIBUTIO N TO SUPERANNUATION FUND OF RS. 5,06,416/- DUE TO DELAY OF 32 DAYS IN DEPOSI TING. THIS ISSUE IS COVERED BY THE DECISION OF HONBLE SUPREME COURT IN THE CAS E OF CIT VS. ALOM EXTRUSIONS LTD. (2009) 319 ITR 306 (SC), WHEREIN IT IS HELD THAT IF THE CONTRIBUTION HAS BEEN PAID BEFORE FILING THE RETURN , THEN THE SAME IS ALLOWABLE. SINCE THE ISSUE IS COVERED BY THE DECISI ON OF HONBLE SUPREME COURT, THEREFORE, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE DEDUCTION 1751 & 1752/DEL/04 HUTCHISON ESSAR TELECOM LTD. 3 WHICH IS PAID BEFORE FILING THE RETURN OF INCOME. A CCORDINGLY, THE ADDITION MADE BY ASSESSING OFFICER AND CONFIRMED BY CIT(A) IS DELETED. ITA NO. 1752/DEL/04 (A.Y. 1999-2000) ; 8. FIRST GROUND IS AGAINST THE ORDER OF CIT(A) IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN TREATING THE SUM OF RS. 1 8,64,57,000/- REPRESENTING LICENCE FEE PAID TO DEPARTMENT OF TELECOM (DOT) A S CAPITAL EXPENDITURE BY INVOKING SEC. 35ABB OF THE ACT. 9. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE COMPA NY IS LIABLE TO PAY A LICENCE FEE UNDER THE LICENCE AGREEMENT FOR THE FIR ST TWO YEARS AT A FIXED AMOUNT AND THEREAFTER AS PER CALCULATIONS BASED ON THE NUMBERS OF SUBSCRIBERS SUBJECT TO A MINIMUM AMOUNT OF THESE. T HE LICENCE FEE IS PAYABLE EACH YEAR AS AND WHEN DUE BASED ON SCHEDULE OF PAYMENT OF LICENCE FEE PROVIDED UNDER THE LICENCE AGREEMENT. THE LICEN SE WAS GRANTED INITIALLY IN 1994 FOR A PERIOD OF TEN YEARS EXTENDABLE FOR ON E YEAR OR MORE. AS PER TERMS OF LICENCE AGREEMENTS, THE ASSESSEE COMPANY H AD TO PAY THE SPECIFIED SUM FOR THE FIRST THREE YEARS AND FROM FOURTH YEAR ONWARDS, IT WAS TO PAY A LICENSE FEE @ 5 LACS PER 100 SUBSCRIBERS SUBJECT TO A CERTAIN MINIMUM FEE. THE LICENCE FEE OF RS. 5 LAC PER 100 SUBSCRIBER IS BASED ON UNIT CALL OF RS. 1.10 SUBJECT TO FURTHER REVISION BASED ON PREVALENT RATE OF UNIT CALL. FURTHER, THE REVISION WAS TO LIMITED TO 75% OF THE OVERALL I NCREASE IN THE UNIT RATE. ON COMPLETION OF THREE YEARS, FROM THE DATE OF COMMISS IONING OF SERVICE UNDER THE LICENSE AGREEMENT DOT RESERVES THE RIGHT TO FIX THE SHARES OF GROSS REVENUE FROM RENTAL, AIR TIME CHARGES AS ADDITIONAL LICENCE FEE HENCE, THE LICENCE FEE PAYABLE FROM 4 TH YEAR ONWARDS WAS SUBSTANTIALLY HIGHER THAN THE MINIMUM FEE STIPULATED UNDER THE AGREEMENT. A SEPAR ATE BANK ACCOUNT WAS REQUIRED TO BE OPENED TO WHICH REVENUE FROM THE ACT IVITIES OF THE COMPANY 1751 & 1752/DEL/04 HUTCHISON ESSAR TELECOM LTD. 4 SHALL BE CREDITED AS DOT RESERVED A LIEN OF 30% ON THE AMOUNTS OF FUNDS CREDITED TO THIS ACCOUNT. 10. THE ASSESSING OFFICER AFTER CONSIDERING THE EX PLANATION OF THE A.R. DID NOT ACCEPT THE SAME. IT WAS OBSERVED BY THE ASS ESSING OFFICER THAT MERELY BECAUSE THE QUANTIFICATION OF LICENCE FEE WA S DONE ON A SPECIFIED FORMULA AND IS LINKED TO THE REVENUE EARNED BY THE ASSESSEE DOES NOT IPSO FACTO MAKE THE LICENCE FEE A REVENUE EXPENDITURE. A SSESSING OFFICER FURTHER OBSERVED THAT IT IS THE AIM AND OBJECT OF THE EXPEN DITURE WHICH DETERMINES THE CHARACTER OF THE EXPENDITURE. THE ASSESSEE HAD ACQUIRED A RIGHT TO CARRY ON THE BUSINESS ON A LONG TERM BASIS HENCE THE ADDI TIONAL LICENSE FEE DEBITED BY THE ASSESSEE TO P&L A/C WAS DISALLOWED AND APPRO PRIATE DEDUCTION WAS ALLOWED U/S 35ABB OF THE ACT. 11. THE CONTENTIONS RAISED BEFORE ASSESSING OFFICER WERE REITERATED BY LEARNED A.R> BEFORE CIT(A). RELIANCE WAS PLACED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TRAVANCORE SUG AR & CHEMICALS VS. CIT 62 ITR 566 WHEREIN IT WAS HELD THAT LICENSE FEE PAID WAS A FUNCTION OF THE PROFITS OF THE BUSINESS AND HAD NO RELATION TO THE VALUE OF CAPITAL ASSET. FURTHER RELIANCE WAS PLACED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF MTNL DECIDED IN ITA NOS. 1088 AND 1618/DEL/2000 WHE REIN IT HAS BEEN HELD THAT LICENSE FEE IS ALLOWABLE AS BUSINESS EXPE NDITURE. HOWEVER, LD. CIT(A) WAS ALSO NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE. THE CIT(A) BY OBSERVING THAT DIFFERENT FEE STRUCTURES H AVE BEEN PRESCRIBED FOR THE FOUR METROPOLITAN CITIES, IT IS OBVIOUS FROM TH E TERMS AND CONDITIONS LAID DOWN IN THE AGREEMENT THAT THE GOVT. WANTED REVENUE TO INCREASE FROM YEAR TO YEAR AND THUS ALLOWED ONLY THREE YEARS TO THE TE LECOM OPERATORS TO ESTABLISH THEMSELVES. THEREAFTER, LICENSE FEE STRUC TURE WAS CHANGED, HOWEVER, NATURE OF THE LICENSE FEE IS THE SAME. ACC ORDINGLY, CIT(A) HELD 1751 & 1752/DEL/04 HUTCHISON ESSAR TELECOM LTD. 5 THAT ASSESSING OFFICER WAS CORRECT IN TREATING THE SAME AS CAPITAL IN NATURE AND ALLOWED THE DEDUCTION U/S 35ABB. 12. HEREIN BEFORE THE TRIBUNAL, COUNSEL OF THE ASSE SSEE REITERATED THE CONTENTION RAISED BEFORE LOWER AUTHORITIES. BRIEF N OTE WAS ALSO FILED. RELIANCE WAS PLACED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF COMSAT MAX LTD. VS. DCIT IN ITA NO. 728 & 701/DEL/2005 DEC IDED ON 30-1-2009 AND THE DECISION IN THE CASE OF MTNL VS. CIT 110 TT J 1. BESIDES THAT RELIANCE IS ALSO PLACED ON THE DECISIONS IN THE CAS ES OF M/S BHARTI CELLULAR LTD. V. DCIT IN ITA NO. 5335/DEL/2003 ; VODAFONE ES SAR GUJARAT LTD. IN ITA NO. 1361/AHD/2009; AND BHARTI AIRTEL LTD. VS. ACIT IN ITA NO. 398/MUM/2006 DECIDED ON 25-6-2010, MENTIONED IN THE WRITTEN SUBMISSIONS FILED. 13. LD. DR, ON THE OTHER HAND, FIRSTLY SUPPORTED TH E ORDER OF LD. CIT(A). RELEVANT PARTS OF ORDER OF LD. CIT(A) WERE READ AL SO CLAUSES OF AGREEMENTS WERE ALSO READ. REGARDING THE CASE LAWS RELIED UPON BY LD. A.R. IT WAS STATED THAT THEY ARE DISTINGUISHABLE AS EACH CASE H AS ITS OWN FACTS. THEREFORE, IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN 62 ITR 563, THE DECISION OF A PARTICULAR CASE SHOULD BE TAKEN ON TA KING INTO CONSIDERATION THE FACT OF THAT CASE. SIMILAR VIEW HAS BEEN STRESSED BY THE HONBLE DELHI HIGH COURT IN 221 CTR 305 WHEREIN IT HAS BEEN HELD THAT WHERE CAPITAL EXPENDITURE IS INCURRED, PROVISIONS OF SEC. 35ABB A RE ATTRACTED. ATTENTION OF THE BENCH WAS ALSO DRAWN TO THE PROVISIONS OF SEC. 35ABB. 14. IN REPLY, THE COUNSEL OF THE ASSESSEE STATED T HAT THE DECISION ON WHICH RELIANCE HAS BEEN PLACED BY LD. DR SUPPORTS THE CAS E OF THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT PROVISIONS OF SEC. 35ABB CLE ARLY SAY THAT WHERE CAPITAL EXPENDITURE IS INCURRED THEN PROVISIONS OF SEC. 35ABB ARE ATTRACTED. THE EXPENDITURE INCURRED BY THE ASSESSEE IS DIRECTL Y IN RESPECT OF GENERATION 1751 & 1752/DEL/04 HUTCHISON ESSAR TELECOM LTD. 6 OF REVENUE, THEREFORE, THE CHARACTER OF THE EXPENDI TURE IS REVENUE IN NATURE AND ON REVENUE ACCOUNT PROVISIONS OF SEC. 35ABB CAN NOT BE ATTRACTED. 15. WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED THEM CAREFULLY. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERI AL ON RECORD WE FIND THAT ASSESSEE DESERVES TO SUCCEED ON THIS ISSUE. WE HAVE GONE THROUGH VARIOUS CLAUSES OF THE AGREEMENT AND FOUND THAT ASSESSEE IS LIABLE TO PAY A CERTAIN LICENSE FEE ON THE BASIS OF 100 SUBSCRIBERS OR PART THEREOF. INITIAL FEES IS TO BE COMPUTED @ RS. 5 LACS PER 100 SUBSCRIBERS AND THERE AFTER A FORMULA HAS BEEN GIVEN. THIS LICENSE FEES HAS BEEN PAID ANNUALL Y AS PER CLAUSES OF AGREEMENT FROM THE FOURTH YEAR AS FOR FIRST THREE Y EARS A FIXED LICENSE FEE HAS TO BE PAID BY THE ASSESSEE JUST TO ESTABLISH ITSELF . ON FIRST THREE YEARS SUBSCRIPTION, PAID BY ASSESSEE, THE ASSESSEE HAS NO T AGITATED MUCH THAT WHETHER THEY ARE REVENUE IN NATURE OR CAPITAL IN NA TURE AS HE WAS SATISFIED WITH THE DEDUCTION U/S 35ABB. HOWEVER, FROM THE FOU RTH YEAR THE STRUCTURE OF LICENSE FEE IS TOTALLY DIFFERENT WHICH IS TO BE PAID ON THE BASIS OF STRENGTH OF SUBSCRIBERS. IN OUR CONSIDERED VIEW, THE LICENSE FEE, PAID YEARLY, CANNOT BE SAID TO BE ENDURING IN NATURE FOR THE SIMPLE REASON THAT IF ASSESSEE DID NOT PAY THE LICENSE FEE IN SUBSEQUENT YEAR, THE LICENSE IS LIKELY TO AUTOMATICALLY CANCELLED. IT MEANS, WHAT EVER THE LICENSE FEE IS P AID, THAT IS PAID FOR ONLY ONE YEAR. IT IS ALSO A MATTER OF FACT THAT THE LICE NSE FEE PAID OR PAYABLE IS ON THE BASIS OF STRENGTH OF SUBSCRIBERS. IT MEANS WHAT IS THE STRENGTH OF SUBSCRIBERS THE LICENSE FEE HAS TO BE CALCULATED O N THE BASIS OF THE SAME SUBJECT TO MINIMUM PAYMENT YEAR-WISE. ON THE BASIS OF STRENGTH OF SUBSCRIBERS REVENUE IS GENERATED AND ON THAT BASIS LICENSE FEE IS QUANTIFIED WHICH HAS A DIRECT LINK WITH THE REVENUE GENERATION . THE ASSESSING OFFICER HAS ALSO NOTICED IN HIS ORDER THAT MERELY BECAUSE T HE QUANTIFICATION OF LICENSE FEE WAS DONE ON A SPECIFIED FORMULA AND IS LINKED T O THE REVENUE EARNED BY 1751 & 1752/DEL/04 HUTCHISON ESSAR TELECOM LTD. 7 THE ASSESSEE, DOES NOT IPSO FACTO MAKE THE LICENSE FEE A REVENUE EXPENDITURE. ONCE IT IS ESTABLISHED THAT LICENSE FEE IS LINKED T O THE REVENUE EARNED BY THE ASSESSEE THEN IT CANNOT BE SAID THAT THIS IS A CAPI TAL EXPENDITURE IN NATURE BECAUSE THE SAME IS LINKED WITH THE REVENUE GENERAT ION. THEREFORE, FOR THIS REASON ALONE THE ASSESSEE IS ENTITLED FOR DEDUCTION OF ENTIRE EXPENDITURE WHICH IS ALLOWABLE U/S 37(1) OF THE ACT. 16. WE FURTHER NOTE THAT THIS ISSUE IS SQUARELY COV ERED BY THE DECISION OF THE TRIBUNAL IN THE CASE OF COMSAT MAX LTD. VS. DC IT (2009) 29 SOT 436 (DEL.). IN THAT CASE ALSO THE LICENSE FEE OF RS. FI FTY THOUSAND WAS FIXED PER ANNUM PER VSAT SUBJECT TO A MINIMUM OF RS. 1.0 CROR E WAS TO PAID PER YEAR FOR THE FIRST TWO YEARS AND RS. 1.5 CRORES IN THE T HIRD YEAR. MINIMUM LICENSE FEE WAS TO BE REVIEWED THEREAFTER. THE LICENSE FEE WAS PAYABLE IN ADVANCE AND COULD BE PAID IN EQUAL QUARTERLY INSTALMENTS TE N DAYS PRIOR TO THE BEGINNING OF THE QUARTER. IN THAT CASE ALSO THE ASS ESSING OFFICER DISALLOWED DEDUCTION CLAIMED U/S 37. CIT(A) ALSO CONFIRMED TH E ACTION OF THE ASSESSING OFFICER . HOWEVER, ON SECOND APPEAL BEFOR E TRIBUNAL, THE TRIBUNAL BY OBSERVING THAT LICENSE GRANTED ENABLED THE ASSE SSEE TO CARRY ON THE BUSINESS SUBJECT TO PAYMENT OF LICENSE FEE. THIS LI CENSE FEE ALSO ENABLED THE ASSESSEE TO ACCESS THE INSAT SATELLITE OWNED BY THE GOVT. OF INDIA SO AS TO CARRY ON ITS BUSINESS. THE LD. CIT(A) HELD THAT SI NCE THE LICENSE WAS GRANTED, WHICH WAS RIGHT TO CARRY ON THE BUSINESS AND WAS GR ANTED FOR A PERIOD OF 10 YEARS, WAS AN ENDURING BENEFIT AND HENCE CAPITAL EX PENDITURE. NO DOUBT THE LICENSE WAS GRANTED FOR A PERIOD OF TEN YEARS BUT T HE LICENSE FEE IS PAYABLE ANNUALLY. THEREFORE, THE BENEFIT AVAILABLE BY MAKI NG THE PAYMENT OF ANNUAL LICENSE FEE WILL LAST FOR THAT YEAR ONLY. IF THE AS SESSEE CHOOSE TO CARRY ON THE BUSINESS IN TERMS OF LICENSE AGREEMENT, LICENSE FEE IS PAYABLE FOR SUBSEQUENT YEAR ALSO. THEREFORE, THE BENEFIT OF LICENSE FEE PA ID DURING THE YEAR ENDURES 1751 & 1752/DEL/04 HUTCHISON ESSAR TELECOM LTD. 8 ONLY TILL THE END OF THE RELEVANT FINANCIAL YEAR AN D DOES NOT EXTEND TO SUBSEQUENT FINANCIAL YEAR. BY THESE OBSERVATIONS, THE TRIBUNAL HELD THAT LICENSE FEE PAID BY THE ASSESSEE IS ALLOWABLE AS RE VENUE EXPENDITURE U/S 37(1) OF THE ACT. 17. SIMILAR VIEW HAS BEEN EXPRESSED IN CASE OF MTNL VS. ADDL. CIT (2006) 8 SOT 376 (DEL.). IN THAT CASE THE TRIBUNAL BY DISCUSSING THE ISSUE IN DETAIL AND DISCUSSING VARIOUS CASE LAWS OF EARLIER YEARS AS WELL AS SUBSEQUENT YEAR AND OTHER DECISIONS OF THE TRIBUNAL, HELD THAT : FROM PERUSAL OF SECTION 8 OF THAT ACT, IT IS NOW EVIDENT THAT UNDER THE CIRCUMSTANCES THE LICENSE IS REVOKED, THE ASSESSEE SHALL NOT BE ABLE TO CARRY ON ITS BUSINESS OF TELEP HONE SERVICES, UNLESS IT HAS PAID SUCH A LICENSE FEE TO THE GOVERN MENT THE IRRESISTIBLE CONCLUSION, THEREFORE, WOULD BE THAT P AYMENT OF LICENSE FEE WAS WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF THE BUSINESS CARRIED ON BY IT. THE SAME WAS, THE REFORE, AN ALLOWABLE DEDUCTION UNDER SECTION 37 OF THE ACT. SI NCE THIS LIABILITY STANDS PAID DURING THE YEAR UNDER CONSIDE RATION, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE DEDUCTIO N TO THE ASSESSEE. 18. WE FURTHER NOTE THAT DELHI BENCH OF THE TRIBUNA L IN THE CASE OF M/S BHARTI INFOTEL LTD. VS. DCIT IN ITA NO. 883/DEL/10 VIDE ORDER DATED 6-7- 2012 HAS ALLOWED SIMILAR DEDUCTION. IN THAT CASE, L ICENSE FEE WAS PAID AT RS. 133,75,68,400/- AS LICENSE WAS GRANTED FOR 15 YEARS . THE ASSESSING OFFICER OBSERVED THAT THIS EXPENDITURE WAS ENDURING IN NAT URE, THEREFORE THE SAME HAS CHARACTER OF CAPITAL IN NATURE. ACCORDINGLY, HE TREATED THIS EXPENDITURE OF CAPITAL IN NATURE AND ALLOWED DEDUCTION U/S 35ABB I .E. 1/15 TH OF THE TOTAL AMOUNT PAID BY THE ASSESSEE. HOWEVER, LD. CIT(A) A LLOWED THE CLAIM FOLLOWING THE DECISION OF THE TRIBUNAL FOR EARLIER YEAR. THEREAFTER, ON APPEAL BY THE DEPARTMENT, THE TRIBUNAL CONFIRMED THE ORDER OF CIT(A) BY FOLLOWING 1751 & 1752/DEL/04 HUTCHISON ESSAR TELECOM LTD. 9 ITS OWN ORDER FOR EARLIER YEAR AS WELL AS DECISION IN THE CASE OF MTNL REPORTED IN 100 TTJ 1 AND ALSO THE DECISION IN THE CASE OF COMSAT MAX LTD. (SUPRA), HOLDING THE LICENSE FEE PAID WAS TREATED A S REVENUE IN NATURE. 19. HERE IN THE PRESENT CASE FACTS ARE ON MUCH STRO NGER FOOTING, AS ASSESSEE IS PAYING LICENSE FEE ANNUALLY, WHEREAS I N THE CASE OF BHARTI INFOTEL LTD. (SUPRA) LICENSE FEES WAS PAID IN THE FIRST YEA R ITSELF FOR 15 YEARS. THESE CASES ARE APPLICABLE DIRECTLY ON THE ISSUE. THEREFO RE, IN VIEW OF THE ABOVE OBSERVATIONS OF OURS AND IN VIEW OF THESE DECISIONS , WE HOLD THAT THE EXPENDITURE ON ACCOUNT OF LICENSE FEE PAID BY ASSES SEE IS REVENUE IN NATURE AND IS ALLOWABLE U/S 37(1) OF THE ACT. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE EXPENDITURE AS CLAIMED BY THE ASSESSEE. 20. SECOND GROUND IS AGAINST UPHOLDING THE DISALLOW ANCE OF RS. 66,17,92,963/- MADE BY THE ASSESSING OFFICER TOWAR DS NOTIONAL INTEREST ON INVESTMENTS IN AN ADVANCES MADE TO SUBSIDIARY COMP ANY. 21. ASSESSING OFFICER DISALLOWED A SUM OF RS. 67.1 7 CRORES AND ODD BY OBSERVING THAT ASSESSEE HAS MADE ADVANCES TO ITS SU BSIDIARIES WITHOUT CHARGING ANY INTEREST WHEREAS ASSESSEE IS PAYING IN TEREST. IT WAS ALSO OBSERVED BY ASSESSING OFFICER THAT ASSESSEE WAS RE QUIRED TO FILE THE DETAILS OF LOANS TAKEN AND LOANS ADVANCED. HOWEVER, THE DET AILS WERE NOT FILED, THEREFORE, HE CALCULATED THE INTEREST @ 18.32% ON T HE VARIOUS INVESTMENTS AND ADVANCES MADE TO ITS SUBSIDIARY AND MADE A DISA LLOWANCE OF RS. 66.17 CRORES AND ODD. 22. BEFORE CIT(A) VARIOUS DETAILS, WHICH WERE REQU IRED BY THE ASSESSING OFFICER , WERE FILED. CHART OF INVESTMENT/ ADVANCE S MADE BY COMPANY DURING LAST SO MANY YEARS WAS ALSO FILED. IT WAS SU BMITTED THAT ASSESSEE HAD PAID ONLY RS. 27 CRORES AND ODD AS INTEREST, HOWEVE R, ASSESSING OFFICER HAS DISALLOWED RS. 66 CRORES AND ODD. WORKING OF THE LO AN TAKEN FROM THE BANK 1751 & 1752/DEL/04 HUTCHISON ESSAR TELECOM LTD. 10 AND ADVANCED TO THE SUBSIDIARY COMPANY WAS ALSO FIL ED. SINCE THESE DETAILS WERE NOT FILED BEFORE ASSESSING OFFICER , ACCORDING LY, A REMAND REPORT WAS SOUGHT FROM THE ASSESSING OFFICER . DETAILED REMAND REPORT WAS RECEIVED FROM ASSESSING OFFICER , WHICH HAS BEEN DISCUSSED B Y CIT(A). THEREAFTER, LD. CIT(A) OBSERVED THAT DURING THE APPELLATE PROC EEDINGS, THE A.R. OF THE ASSESSEE WAS TO ESTABLISH A NEXUS BETWEEN THE INTER EST FREE ADVANCES AND INTEREST FREE FUNDS RECEIVED BY IT. IN RESPONSE THE RETO THE LD. A.R. FILED A COPY OF BANK STATEMENT, LEDGER ACCOUNT OF AIR CELL AND DETAILS OF INVESTMENTS IN KFSL VIDE LETTER DATED 12-3-2004. HO WEVER, OBSERVING THAT IT WAS NOT POSSIBLE TO ESTABLISH THE NEXUS, THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 23. NOW HERE BEFORE THE TRIBUNAL, THE COUNSEL OF TH E ASSESSEE INVITED THE ATTENTION OF THE BENCH ON THE WRITTEN NOTE FILED AN D VARIOUS DETAILS WHICH WERE FILED BEFORE LD. CIT(A). IT WAS EXPLAINED THA T KARTHIK FINANCIAL SERVICES LTD. (KFSL) IS HUNDRED PER CENT SUBSIDI ARY OF THE ASSESSEE AND ON 31-3-1999 THE INVESTMENT IN KFSL WAS RECORDED AT 156.4 CRORES ( AS PER SCHEDULE E TO THE AUDITED FINANCIAL STATEMENT). IT WAS FURTHER SUBMITTED THAT INVESTMENT IN KFSL WAS MADE DURING FY 1996-97 AND N O ADDITIONAL INVESTMENT WAS MADE IN THE YEAR UNDER CONSIDERATION . IT WAS FURTHER SUBMITTED THAT AIRCEL DIGILINK LIMITED (ADIL), WH ICH WAS A SUBSIDIARY OF KFSL, CERTAIN AMOUNT WAS PAID BY THE ASSESSEE COMPA NY. IT WAS FURTHER EXPLAINED THAT SINCE KFSL IS 100% SUBSIDIARY OF TH E ASSESSEE COMPANY, THEREFORE, ADIL AUTOMATICALLY BECAME THE SUBSIDIARY OF THE ASSESSEE COMPANY. WHAT-EVER THE LOANS/ INVESTMENTS WERE MADE TO THESE COMPANIES, THEY WERE FOR COMMERCIAL EXPEDIENCY. ATTENTION OF T HE BENCH WAS DRAWN ON THE WRITTEN SUBMISSIONS WHERE A CHART OF PAYMENT IS APPEARING. AS PER THE CHART IN F.Y. 1995-96 RS. 46.3 CRORES; IN F.Y. 199 6-97 RS. 66.1 CRORES; IN 1751 & 1752/DEL/04 HUTCHISON ESSAR TELECOM LTD. 11 F.Y. 1997-98 RS. 37.8 CRORES; AND IN CURRENT YEAR I.E. F.Y. 1998-99 RS. 54.7 CRORES INVESTMENTS/ ADVANCES WERE MADE BY THE ASSES SEE TOTALING TO RS. 204.0 CRORES. 24. IT WAS STATED THAT NO DISALLOWANCE HAS BEEN MAD E IN THE PAST AS THE ADVANCES WERE MADE IN THE PAST. IT WAS FURTHER SUBM ITTED THAT ASSESSEE HAD ITS OWN FUNDS MUCH OF LARGER AMOUNT THAN THE ADVANC E PAYMENT WAS MADE FOR THIS PURPOSE. A COPY OF CHART FILED BEFORE CIT (A) WAS SHOWN, COPY OF WHICH IS PLACED AT PAGE 182 OF THE PAPER BOOK. AS P ER THIS CHART, ASSESSEE HAS ITS OWN EQUITY OF RS. 153,000 IN F.Y. 1995-96; RS. 3,652,449 IN F.Y. 1996- 97; WHICH INCREASED TO RS. 2,333,845 DURING F.Y. 1 997-98, WHEREAS TOTAL INVESTMENT OR ADVANCES ARE MADE ONLY RS. 1,563,819 UP TO F.Y. 1997-98 AND REMAINING AMOUNT OF RS. 547,000 WAS ADVANCED IN TH E CURRENT YEAR. ACCORDINGLY, IT WAS EXPLAINED THAT THE AMOUNT ADVAN CED TO THE SUBSIDIARY WAS FROM ITS OWN FUNDS AND THEREFORE, NO ADDITION ON ACCOUNT OF NOTIONAL INTEREST IS CHARGEABLE. IT WAS ALSO REITERATED THAT ASSESSEE HAS PAID ONLY 27.24 CRORES ON ITS LOANS. THEREFORE, FOR THIS REASON ALS O NOTIONAL INTEREST COMPUTED AT RS. 66.17 CRORES AND ODD IS WITHOUT ANY BASIS. I T WAS ALSO EXPLAINED THAT TOTAL FUNDS RAISED BY ASSESSEE THROUGH EQUITY UP TO A.Y. 1999-2000 WERE RS. 613 CRORES 92 LACS AND 94 THOUSAND, WHICH IS MUCH MORE THAN THE AMOUNT ADVANCED TO ITS SUBSIDIARY. HENCE, NO DISALLOWANCE IS WARRANTED. 25. IN SUPPORT OF THIS CONTENTION, RELIANCE IS PLA CED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. BHA RTI TELEVENTURE LTD. RELIANCE UTILITIES & POWER LTD. 331 ITR 502 (DEL.) AND THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RE LIANCE UTILITIES & POWER LTD. 313 ITR 340 (BOM.). 26. IT WAS FURTHER SUBMITTED THAT ISSUE IS SQUARELY COVERED BY THE DECISION OF THE APEX COURT IN THE CASE OF SA BUILDERS LTD. VS. CIT 288 ITR 1 (SC) 1751 & 1752/DEL/04 HUTCHISON ESSAR TELECOM LTD. 12 AS THE AMOUNT OF INVESTMENT/ ADVANCE IS GIVEN TO IT S SISTER CONCERN FOR THE PURPOSE OF BUSINESS ONLY. 27. ALTERNATIVELY, IT WAS SUBMITTED THAT IF ANY DIS ALLOWANCE CAN BE MADE THAT CAN BE MADE IN RESPECT OF INVESTMENT MADE DURI NG THE YEAR UNDER CONSIDERATION I.E. RS. 54.7 CRORES AND NOT OF THE E NTIRE AMOUNT WHICH WAS ADVANCED IN EARLIER YEARS. IN SUPPORT OF THIS CONTE NTION, RELIANCE HAS BEEN PLACED ON THE DECISION OF HONBLE KARNATAKA HIGH CO URT IN THE CASE OF CIT VS. SRIDEV ENTERPRISES 192 ITR 165. IT WAS ALSO SUB MITTED THAT ONLY DURING THE YEAR UNDER CONSIDERATION THE AMOUNT OF RS. 10.5 CRORES IS TAKEN ON LOAN AND IF ANY DISALLOWANCE CAN BE MADE THAT CAN BE MAD E EQUALVENT TO THE INTEREST ON THIS AMOUNT. 28. ON THE OTHER HAND, LD. DR PLACED RELIANCE ON TH E ORDER OF CIT(A). HOWEVER, HE FAIRLY ACCEPTED THAT IF THE ADVANCE IS MADE TO SISTER CONCERN FOR THE PURPOSE OF BUSINESS THEN OF COURSE IN VIEW OF A BOVE DECISIONS, THE SAME IS ALLOWABLE. HOWEVER, THE FACTS ARE NOT CLEAR WHET HER THESE ADVANCES ARE GIVEN FOR BUSINESS PURPOSES OR NOT, THEREFORE, MATT ER SHOULD BE SENT BACK TO THE FILE OF ASSESSING OFFICER FOR EXAMINING THE SA ME. 29. AFTER CONSIDERING THE SUBMISSIONS OF THE PARTIE S AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT ASSESSEE DESERVES TO SUCCEED ON THIS GROUND ON MERITS AS WELL AS ALSO IN VIEW OF THE DECISION O F APEX COURT IN THE CASE OF SA BUILDERS LTD. (SUPRA). ON MERITS, SINCE THE ASSE SSEE HAS ITS OWN FUNDS WHICH NOT TAKEN INTO CONSIDERATION EITHER BY ASSESS ING OFFICER OR BY LD. CIT(A) WHEREAS ASSESSEE HAS FILED COMPLETE DETAILS BEFORE THEM, NEITHER THEY HAVE COMMENTED ON THESE ASPECTS. THERE IS NO NEED T O ESTABLISH THE NEXUS WHEN IT IS PROVED THAT ASSESSEE HAS ITS OWN FUNDS W HICH ARE MUCH MORE THAN THE ADVANCES/ INVESTMENTS MADE BY ASSESSEE TO ITS S ISTER CONCERN. A CHART OF SAME IS PLACED IN THE PAPER BOOK AT PAGE 182, WHICH IS SELF EXPLANATORY. THE 1751 & 1752/DEL/04 HUTCHISON ESSAR TELECOM LTD. 13 HONBLE DELHI HIGH COURT IN CASE OF BHARTI TELEVENT URE LTD. RELIANCE UTILITIES & POWER LTD. (SUPRA) AND THE HONBLE BOMB AY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD. (SUPRA) HAV E CLEARLY HELD THAT WHERE THERE ARE MIXED FUNDS AND FUNDS AVAILABLE WITH THE ASSESSEE ARE MUCH MORE THAN THE ADVANCES MADE THEN NO DISALLOWANCE CAN BE MADE ON ACCOUNT OF NOTIONAL INTEREST COMPUTED BY ASSESSING OFFICER. IT IS FURTHER SEEN THAT THE ONLY LOAN TAKEN BY ASSESSEE WAS OF RS. 10.5 CRORES DURING THE YEAR AND PAYABLE INTEREST PAID BY ASSESSEE ON ITS LOAN AND A DVANCES WAS RS. 27 CRORES, THEREFORE, DISALLOWANCE CANNOT EXCEED FORM THESE AM OUNTS. THEREFORE, FOR THIS REASON ALSO DISALLOWANCE DESERVES TO BE DELETE D. 30. AS STATED ABOVE, THE ASSESSEE HAS ITS OWN FUNDS , THEREFORE, THE ENTIRE ADDITION IS LIABLE TO BE DELETED. EVEN OTHERWISE, T HE AMOUNT HAS BEEN ADVANCED TO ITS SISTER CONCERN/ SUBSIDIARY, WHICH A RE DOING BUSINESS AND IT HAS BEEN CLEARLY STATED THAT THE SAME HAS BEEN ADVA NCED FOR COMMERCIAL EXPEDIENCY, THEREFORE, IN VIEW OF THE DECISION OF T HE APEX COURT IN THE CASE OF SA BUILDERS LTD. (SUPRA), IN OUR CONSIDERED VIEW NO DISALLOWANCE IS TO BE MADE. ACCORDINGLY, WE ALLOW THIS GROUND OF THE ASSE SSEE. 31. THIRD GROUND IS AGAINST NOT TREATING THE INTERE ST INCOME AS BUSINESS INCOME AS THE ASSESSING OFFICER HAS TAKEN THE INTE REST INCOME AS INCOME FROM OTHER SOURCES. THIS PLEA WAS TAKEN BEFORE CIT (A) FOR THE FIRST TIME AND CIT(A) HAS REJECTED THE CLAIM OF THE ASSESSEE. HOWE VER, WE ARE OF THE VIEW THAT THE MATTER SHOULD BE EXAMINED AFRESH BY THE AS SESSING OFFICER BY EXAMINING THE FACTUAL ASPECT THAT ON WHICH AMOUNT THE INTEREST HAS BEEN EARNED; WHETHER THERE IS DIRECT NEXUS BETWEEN EARN ING OF INTEREST AND EXPENDITURE OF INTEREST. IF THERE IS A DIRECT NEXUS BETWEEN EARNING OF INTEREST AND EXPENDITURE OF INTEREST THEN SET OFF IS TO BE G IVEN AND IF THERE IS AN INCOME ON ACCOUNT OF SURPLUS FUNDS THEN OF COURSE T HE INTEREST INCOME HAS TO 1751 & 1752/DEL/04 HUTCHISON ESSAR TELECOM LTD. 14 BE TREATED AS INCOME FROM OTHER SOURCES. SINCE FACT S ARE NOT CLEAR, THEREFORE, WE SET ASIDE THIS ISSUE TO THE FILE OF THE ASSESSIN G OFFICER. FOR THE SAKE OF CLARIFICATION, THIS OBSERVATION WAS MADE IN THE OP EN COURT AND BOTH THE PARTIES AGREED TO THESE OBSERVATIONS MADE BY THE BE NCH. WE ORDER ACCORDINGLY. 32. IN THE RESULT, APPEALS OF THE ASSESSEE ARE ALLO WED IN PART FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 03-08-2012. SD/- SD/- ( B.C. MEENA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 03-08-2012. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR 1751 & 1752/DEL/04 HUTCHISON ESSAR TELECOM LTD. 15